Sunday, December 17, 2006

Deficit Numbers Significantly Underestimated

Interesting article that points out that had the government used the accounting methods it requires private businesses to follow, the U.S. federal deficit would have been a lot higher ( Many other governments uses the same misleading accounting methods).

Companies report their profits in terms of revenues and costs, that is when earnings and expenses are actually accrued. But the government report its finances in terms of ingoing payments and outgoing payments. Which is relevant in terms of the social security (pension) system which currently receives a lot more ingoing than outgoing payments, but whose real costs are much bigger as it accumulates future social security payment obligations.


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